SHORT-TERM CONTRACTS REGULATIONS AND DYNAMIC LABOUR DEMAND: THEORY AND EVIDENCE

We present a dynamic labour demand model where we evaluate the impact of employment regulations on permanent and temporary employment. We consider three different kinds of regulations, namely firing costs, hiring costs and a constraint on temporary contracts. These regulations differently affect the size and composition of employment. The theoretical results are interpreted and questioned on the basis of empirical evidence on the employment effects of the regulation reforms that occurred in the major European countries in the period 1983–1999. The empirical analysis is based on a new set of time‐varying indicators on permanent employment protection, fixed‐term contracts and temporary agency work regulations. We find evidence in support of the hypothesis that fixed‐term contracts have been effective stepping‐stones to permanent jobs during the period under observation. On the contrary, flexible temporary agency work regulations seem to induce a substitution of permanent with temporary contracts.     

The effect of temporary help jobs on employment volatility

This study investigates the impact of temporary agency employment on employment volatility outside the sector. Making use of econometric volatility models, we find that enhancing numerical flexibility by temporary agency employment decreases employment volatility of incumbent workers. However, not all subgroups are benefitting equally. While prime‐age permanent workers gain considerably from higher flexibility, young workers, migrants and low‐skilled workers not only are overrepresented among the temps but also do not gain when employed outside the sector.     

Demand and supply effects of bargaining power shocks

In times of crisis, social partners may consider a temporary decline in wages as a necessity to maintain employment. This paper studies the opposing demand and supply effects following declining bargaining power of workers in a New-Keynesian model with search and matching in the labour market. Lower labour income reduces aggregate demand in the presence of credit-constrained consumers. The main result is that falling bargaining power contracts output notably when monetary policy is constrained by the zero lower bound or when agents' expectations about the persistence of the shock adjust slowly.     

How credit constraints affect small and medium enterprises' strategic employment decisions and employees' labour outcomes: Evidence from Vietnam1

This study makes use of rich firm-level and linked firm-employee datasets that span the 2009–2015 period in Vietnam to examine how SMEs' credit constraints affect their strategic employment decisions and employees' labour outcomes. Our results show that constrained SMEs enlarge total employment by employing relatively more temporary workers and paying their employees relatively lower wages than unconstrained borrowing firms. Meanwhile, discouraged firms, mostly informal businesses, do not behave differently from unconstrained counterparts. In order to maintain a stable employment portfolio, discouraged firms are relatively more willing to reward their employees with an overtime payment.     

Permanent and temporary workers in a matching framework

This paper investigates on a theoretical level the underlying causes of recent trends in decision of firms to hire temporary and permanent labour when workers and firms meet through a frictional directed search technology. Temporary workers differ from permanent workers in that they have a lower bargaining weight but look for a permanent job while on the temporary job. The findings are that permanent arrangements are more prevalent the more productive the aggregate production function is, i.e. also in the less productive phases. More efficient matching has an inverse U shaped impact, it first increases the prevalence of temporary arrangements and then decreases it. Bargaining weights have an ambiguous impact.     

Innovation and job creation in a dual labor market: evidence from Spain

This paper studies the effect of product and process innovations on job creation in the Spanish manufacturing sector over the period 1991–2005. We use a change in the employment protection legislation (EPL) in 1997 to study the effect of innovations on permanent and temporary workers before and after that change. We find that (i) product and process innovation created jobs, (ii) before the change in the EPL in 1997 innovations did not affect the number of permanent workers and all the increase in employment was explained by the increase in the number of temporary workers, (iii) after the change in the EPL, innovations increased both the number of temporary and permanent employees, and (iv) while the increase in temporary workers takes place after one year of the innovations, the increase in permanent workers occurs mainly two years after the innovations.     

R&D investment,cash holdings and the financial crisis: evidence from Korean corporate data

This article examines the real effects of the financial crisis in 2008 on corporate R&D investment by analyzing firm-level panel data from 2005 to 2011 obtained from KIS-VALUE, a Korean corporate finance database. I estimate a dynamic panel model of R&D investment that includes an after-crisis dummy to reflect the effects of the external finance supply shock after the financial crisis, an interaction term of the dummy and cash holdings to measure the marginal effect of cash holdings after the crisis, investment opportunities (sales and the q ratio) and financial positions as the debt-equity ratio. The estimation implies a negative yet relatively small impact of the credit supply shock from the financial crisis on R&D investment and the mitigation of the negative impacts by cash holdings after the onset of the financial crisis, whereas the data show decreasing R&D investment and sales for the whole period. Based on the data and the estimation, I find that firms were able to lessen the pressure from diminishing market demand before the crisis using external finance, but they had to use internal financial sources after the crisis smooth R&D investment.     

Temporary and Permanent Immigration under Unionization

This paper investigates permanent and temporary immigration and remittance under the coexistence of unionized and non‐unionized manufacturing firms in a two‐sector economy. The impacts of immigration and remittance on respectively wages, employment, the union–non‐union wage gap and national welfare are analyzed. It is found that both permanent immigration (economy‐wide) and temporary immigration in agriculture bring positive effects on most variables (except the competitive wage), but widens the wage gap and causes income redistribution in the host country. However, if temporary immigrants work in manufacturing only, then all wages and the union–non‐union wage gap fall. That is, workers become more equally paid but poorer. In addition, remittance and globalization cause negative effects on union workers and employers. It is perhaps such consequences and the income redistribution effect of immigration that cause the media to paint a negative image of immigration.     

The impact of labour reallocation and competitive pressure on TFP growth: firm‐level evidence from crisis and transition ridden Bulgaria

This article uses the experiment of a macro‐financial crisis and radical liberalization in Bulgaria to explore the impact of labour reallocation and competitive pressure on Total Factor Productivity (TFP) growth in the manufacturing sector. Our results indicate that labour reallocated from less efficient to more efficient firms in virtually all industries but the influence of other within industry characteristics on TFP growth was significantly higher than the impact of between industry characteristics. Furthermore, while increased competitive pressure had a positive impact on TFP growth among relative laggards in the respective industries, this impact was more than overwhelmed by the inability of industrial leaders to leapfrog their competitors. This result is inconsistent with evidence from developed industrialized economies, but similar to that of less developed countries marked by credit crunch and institutional failure. It has potentially important policy implications.     

The economics of the Syrian refugee crisis in neighbouring countries: The case of Lebanon

In this article, we investigate the effects of a massive displacement of workers from a war‐torn economy on the economy of a neighbouring country. Applying a general equilibrium approach to the Lebanese economy, we explore effects from various components of the crisis on the labour market, the production apparatus and macroeconomic indicators. Along with previous literature, our findings suggest limited or no adverse effects on high‐skilled native workers, but a negative impact on the most vulnerable Lebanese workers. When aid takes the form of investment subsidies, significantly better growth and labour market prospects arise, recalling the necessity of complementing humanitarian aid with development aid to succeed in achieving long‐term objectives. This may however not be politically viable in a context where refugees are considered as temporary.     

Temporary work and neoliberal government policy: evidence from British Columbia,Canada

We examine the impact of government policy on the incidence of temporary work by analysing the case of British Columbia (BC), Canada. The analysis is based upon the Canadian Labour Force Survey 1997–2004; temporary work is defined as work that is not expected to last for more than 6 months and includes seasonal, fixed‐term, casual, and temporary help agency work. A case study of BC provides a valuable opportunity to assess the impacts of neoliberal government policy, designed to increase labour market flexibility, on the extent of temporary work because we are able to compare labour market trends in BC both before and after the reforms introduced in 2001 and to compare BC with other provinces in Canada that were not subject to such large changes in their policy environments. We find that the shift to neoliberal policies in BC led to significant increases in the likelihood of workers finding themselves in temporary employment. We also find that the likelihood of being a temporary worker in BC in the post‐policy change period increases relative to all other provinces over the same period. Taken together, these results indicate that government policy is a key determinant of the level of temporary work. As such, the level of temporary work should be seen as a policy‐sensitive variable, rather than as a phenomenon determined solely by the exogenous forces of globalization and technological change.     

Employment Protection Versus Flexicurity: On Technology Adoption in Unionised Firms*

We analyse how different labour‐market institutions – employment protection versus ‘flexicurity’– affect technology adoption in unionised firms. We consider trade unions’ incentives to oppose or endorse labour‐saving technology and firms’ incentives to invest in such technology. Increased flexicurity – interpreted as less employment protection and a higher reservation wage for workers – unambiguously increases firms’ incentives for technology adoption. If unions have some direct influence on technology, a higher reservation wage also makes unions more willing to accept technological change. Less employment protection has the opposite effect, as this increases the downside (job losses) of labour‐saving technology.     

HOUSING MARKETS AND THE GLOBAL FINANCIAL CRISIS: THE COMPLEX DYNAMICS OF A CREDIT SHOCK

We analyze the multiple channels of influence that global financial crisis‐induced credit restrictions had on New Zealand's subnational housing markets. The dynamics caused by the credit shock are compared to those caused by a migration shock, a more common form of housing shock in New Zealand. We focus on the impacts on two outcome variables, house prices and housing supply, within a structural time series model of regional housing markets. Both shocks cause substantial and prolonged cyclical adjustments in each variable. Similar cyclical dynamics could complicate the conduct of macroprudential policies designed to affect bank credit allocation. (JEL E32, E44, R21)     

Migrants’ well-being during the global financial crisis: Economic and social predictors

This paper investigates the economic and social predictors affecting the well-being of temporary migrants before, during and after the financial crisis. Exploiting unique panel data which cover migration spells from Tajikistan to Russia between 2001 and 2011, we find that migrants earn less but stay longer in the destination during the crisis; at the same time, they become more exposed to illegal work relations, harassment and deportation through the Russian authorities. The overall income loss can be attributed to wage cuts and to rising illegal employment that is generally poorly paid. Despite the similarities in the demographics and jobs of migrant workers, we find substantial heterogeneity in how the financial crisis affects their well-being. Migrants who experience wage losses during the crisis rationally stop migrating.     

Measuring Labour Services: Quality‐Adjusting the Entry and Exit of Workers

Many statistical agencies use the sum of hours worked when measuring labour services. This implies that all workers provide work of equal quality. Various indices for adjusting for labour quality have been employed in a large body of literature. However, this literature has not yet addressed the issue of how to quality‐adjust the impact of workers entering and exiting the labour market. We outline a theoretical framework for dealing with quality adjustment of labour services caused by workers entering and exiting employment. To illustrate the theoretical framework, we use the case of Norway in the period 1997–2013. The impact on labour services due to our quality adjustment of net entry is found to be cyclical. While the adjustment for the quality of net entry amounts to about −0.3 percentage points annually during expansions, it is offset by about the same magnitude during contractions.     

Markets contagion during financial crisis: A regime-switching approach

Within a Markov regime-switching VAR framework, we investigate the contagion effects among the stock market, real estate market, credit default market, and energy market covering the most recent financial crisis period when markets experience regime shifts. The results demonstrate that the watershed of regimes occurs around the start of the subprime crisis in 2007, after which the “risky” regime dominates the evolution of market chaos. During the financial crisis, excluding their own shocks, stock market shock and oil price shock are the main driving forces behind the credit default market and stock market variations, respectively. The energy market also appears to be more responsive to the stock market movements than the shocks originating from housing and credit markets. However, the impacts from the credit default market on the real estate market are not significant as expected.     

FIRM BEHAVIOUR AND FINANCIAL PRESSURE: EVIDENCE FROM SPANISH PANEL DATA

This paper examines responses by firms in Spain to the experience of financial pressure. Using panel data methods applied to a large company panel, a number of aspects of corporate behaviour and the response of each to financial pressure are examined. We consider fixed investment, inventories, employment – distinguishing both permanent and temporary contract employees – and dividend policies. Our results include finding significant effects of financial pressure from borrowing costs on each outcome, particularly investment and employment. The effects on temporary employment are also found to be larger and work through more quickly than on permanent employment.     

Labour mobility during transitionEvidence from Georgia1

This article deals with labour mobility in Georgia during economic transition. We use quarterly 1998–99 panel data to examine mobility across six labour market statuses (inactivity, unemployment, formal wage employment, informal wage employment, self‐employment and farming). Our findings are consistent with the hypothesis of labour market segmentation. Formal employment is preferred to informal employment. Unemployment is largely a queuing device for individuals with higher education waiting for formal jobs. Some self‐employment is subsistence activities and consistent with a segmented labour market, while other is high risk and potentially high return activities. Age, gender and education are significant determinants of labour mobility. Finally, informal employment serves as a buffer in times of recession – with farming and informal wage employment absorbing labour shed by other statuses during the Russian financial crisis.     

The effects of wrongful discharge protection on foreign multinationals: Evidence from transaction‐level data

Using detailed micro‐level data from 1977 to 1994, we analyze the impact of employment protection measures adopted across US states on the number and the value of new inbound foreign direct investment (FDI) transactions completed by foreign‐owned companies. Our findings point to a robust negative association between the implementation of employment protection laws and both the extensive and the intensive margins of FDI in the US. When states adopt regulations that increase employers’ firing costs, FDI transactions by foreign multinational companies become less frequent and decrease in value, with stronger negative impacts in more labour‐intensive industries. There is also some evidence of diversion and spillover effects from the adoption of these measures by neighbouring states.     

Monetary Policy, Credit and Aggregate Supply: The Evidence from Italy

This paper concerns theory and evidence of the monetary transmission mechanisms. Current research has deeply investigated factors, such as dependence of firms on bank credit, that amplify the impact of monetary policy impulses on aggregate demand exerting strong but temporary effects on output and employment. We present an intertemporal macroeconomic equilibrium model of a competitive economy where current production is financed by bank credit, and then we use it to identify supply–side effects of the credit transmission mechanism in data drawn from the Italian economy. We find evidence that the 'credit variables' identified by the model – the overnight rate as a proxy of monetary policy and a measure of credit risk – have permanent effects on employment and output by altering credit supply conditions to firms.
To save on space, mathematical proofs, statistical tests and data sources have been gathered in two separate appendices that can be examined on request.
(J.E.L.: E2, E5).